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Income Tax Appellate Tribunal, “SMC-A” BENCH : BANGALORE
Before: SHRI ARUN KUMAR GARODIA
O R D E R
Per Shri A.K. Garodia, Accountant Member
This appeal is filed by the assessee and the same is directed against the order of ld. CIT (A), Davangere dated 17.12.2018 for Assessment Year 2015-16.
The grounds raised
by the assessee are as under. “1. The Order of the learned ITO and CIT (A) is against law and facts.
2. Rs.67,725/-(Interest income from Co-operative Banks after deduction ofexpenditure). Particulars Amount in Rs. Amount in Rs. Bank Interest 19,00,604 Less: Cost of Funds 9,09,547 Less: Cost of Administration 9,23,332 18,32,879 Taxable Income 67,725 i. The learned ITO and CIT (A) erred in bringing to tax the interest incomereceived from investment in a co-operative bank on the ground that a'co-operative bank' is not a co-operative societyand furtherthat suchinterest was not co-operative income. Particulars Rs. Interest income from Co-operative Bank Shimoga District Central Co-op Bank Ltd 67,725 Total 67,725 ii. The learned ITO and CIT (A) wrongly applied the decision of theSupreme Court in the case of Mis. Totagara Co-operative Sale Society Ltd. vs. ITO (2010) 188 Taxmann and the CIT (A) the decision of Karnataka High Court in Principal Commissioner of Income-Tax and another vs. M/s. Totagars co-operative sale society [2017] 395 ITR 611(Karn)as these two decisions were dealing with a case of co- operative society indulging in business with non-members and surplus generated from such activity might have been invested in banks which was not the position in the instant case; the appellant deals only with members as can be seen from the books of accounts, and balance sheet iii. The learned ITO and CIA (A) ought to have appreciated that theappellants' activities are restricted and confined to co-operative activitiesi.e. transactions with members and hence the interest from investment ofsuch surplus relating to co-operativeincome was equally exempt underthe main provisions of Sec.80P(2). iv. The learned CIT(A) erred in not appreciating the ratio decidendi of theKarnataka High Court decision Pr.Commissioner of Income Tax vs.Totagara's Co-operative Society (2017) 395ITR 611 (Kar) whichlaid down; "It is the character and nature of income whichdeterminesits taxability or exemption from taxability" In the instantcase the deposits represented surplus of co- operativeactivity income and not any non-co-operative business income as in the case of Totagara which had multiple business activities.
3. The learned ITO and CIT (A) was bound to apply the Karnataka High Courtdecision inM/s. Tumkur Merchants Souharda Credit Co- operative Ltd vs.ITO [2015] 55 taxmann.com 447 (Karn) and Mis. Guttigedarara Credit Co-Operative Society Ltd v. Income Tax Officer [2015] 377 ITR 464 (Karn)as facts being the same.”
It was submitted by ld. AR of assessee that the assessee’s claim for deduction u/s. 80P(2) in respect of interest income from bank should be decided in favour of the assessee because this issue is covered in favour of the assessee by the judgement of Hon'ble Karnataka High Court rendered in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO as reported in 230 Taxman 309. At this juncture, the bench pointed out that on this issue, there is one more judgment of Hon'ble Karnataka High Courtrendered in the case of PCIT and Another Vs. Totagars Co-operative Sale Society as reported in 395 ITR 611 (Karn). The bench pointed out that in both these judgements, the ultimate conclusion is different because the facts are different but there is no contradiction in these two judgments. The bench pointed out that in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO (supra), it was found that the amount deposited in bank was out of assessee’s own funds and Page 3 of 3 not out of its liability and therefore, this issue was decided in favour of the assessee but in the case of PCIT and Another Vs. Totagars Co-operative Sale Society (supra), it was found that the amount deposited in bank was out of assessee’s liability and not out of assessee’s own funds and therefore, this issue was decided against the assessee. The bench observed that there is no finding of any of the authorities below on this factual aspect and therefore, it is proper to restore back the matter to the file of CIT(A) for fresh decision after examining the facts of present case in the light of these two judgements of Hon'ble Karnataka High Court. The ld. AR of assessee agreed to this proposition put forward by the bench. The ld. DR of revenue submitted that on this aspect, he is also in agreement with the proposition put forward by the bench.
In view of the above discussion, I set aside the order of CIT(A) and restore the matter back to the file of CIT(A) for fresh decision in the light of above discussion after examining the facts of present case in the light of these two judgements of Hon'ble Karnataka High Court rendered in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO (supra) and PCIT and Another Vs. Totagars Co-operative Sale Society (supra). Thereafter the CIT(A) should pass necessary order as per law after providing adequate opportunity of being heard to both sides.
In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced in the open court on the date mentioned on the caption page.